UPDATE 1-Regulators pose threat to EU green energy and industry
* Commission expected to announce formal probe on Wednesday
* Some say investigation alone will shatter confidence
* Carbon targets seen as too weak to encourage investment (Adds detail, German industry reaction)
BRUSSELS, Dec 16 (Reuters) - German heavy industry could face a multi-billion euro bill from an inquiry by European Union regulators into the country's energy subsidies that could also jeopardise Europe's shift to greener fuel, campaigners and lawyers say.
Across the EU, politicians, business and ordinary consumers have blamed green energy subsidies for pushing up fuel costs.
On Wednesday, the European Commission is expected to announce its investigation into Germany's management of subsidies as it executes its Energiewende, or move from fossil fuel and nuclear to renewable power.
Some 2,300 German heavy energy users, including chemical and steel firms such as BASF and ThyssenKrupp, have been exempt from a green surcharge ordinary consumers have to pay.
The Commission, the EU executive, is examining whether the exemptions of around 5 billion euros ($6.87 billion) per year were unfair and should be paid back. A 51-page letter from the Commission to the German government seen by Reuters spells out concerns that the waiver was unlawful state aid.
A German Environment Ministry spokeswoman said only it remained to be seen what the Commission would decide.
Groups representing smaller companies and ordinary consumers said an enquiry was necessary as German households and small business bore most of the cost of renewables.
Industry, meanwhile, faces the prospect of repaying discounts received over several years. Utz Tillmann, head of German chemicals trade group VCI, said the subsidies were vital and appropriate as they offset competitive disadvantages.
HALT TO THE ENERGIEWENDE?
The final outcome of the investigation might be benign. Germany could be cleared or just asked to meet certain conditions in order to fall in line with EU rules.
But the enquiry alone into one of the most sophisticated green energy laws could shatter investor confidence across Europe in renewable energy, such as solar and wind, and it could drag on for months or even years.
Doerte Fouquet, a Brussels-based lawyer at Becker Buettner Held, said the implications went far beyond the industry waiver, which the new German government would tackle.
"The problem is that with such a state aid investigation decision, the whole renewable energy system may break down. This could immediately affect running projects," she said.
The European Renewable Energies Federation (EREF), which represents green energy, urged the Commission to think again.
"With an opening of a full investigation procedure, the German Energiewende would come to a halt with immediate effect," Rainer Hinrichs-Rahlwes, EREF president, wrote in a letter to the European Commission.
The Commission is also expected to announce on Wednesday a separate inquiry into whether Britain's plans to fund nuclear generation could distort the market.
Britain says it needs carbon-free nuclear power if it is to generate enough energy and also to lower emissions. Even though nuclear is a mature form of energy, it is not affordable without government help.
Both renewable and nuclear energy make more economic sense in the context of a high emissions-cutting goal. But the risk is that on top of the uncertainty surrounding the Commission investigations, future policy targets for EU emissions and green energy will be too weak to give direction to investors.
Debate so far on 2030 targets, expected to be published in January, has focused on a 40 percent emissions cut versus 1990 levels.
Although double the existing 2020 goal, the 40 percent emissions goal would require very little new effort as Europe has already nearly met its 20 percent target.
Kevin Anderson, energy and climate change professor at Britain's Manchester University, said the European Union must aim to cut emissions by around 80 percent by 2030, if it is sincere about capping global warming at the 2 degree limit it has said is needed to avoid the worst consequences.
Anderson, who has advised the British government on energy, has written to Commission President Jose Manuel Barroso accusing the Commission of working in a vacuum of scientific evidence.
A Commission source said it was policy not to comment on individual letters, but all views were taken into account. ($1 = 0.7283 euros) (Additional reporting by Foo Yun-chee in Brussels, Christoph Steitz in Frankfurt, Andreas Rinke and Gernot Heller in Berlin and Tom Kaeckenhoff in Duesseldorf. Editing by Jane Merriman)
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